FCA warns crypto investors face ‘losing all their money’
Consumers must understand the risks associated with cryptocurrency investments or face the prospect of major financial losses, the UK’s Financial Conduct Authority (FCA) has warned.
The watchdog issued new advice on Monday as the value and interest in Bitcoin, alongside other digital currency, continues to grow at record pace. But volatility and complexity in a relatively unknown investment system means consumers who invest in cryptoassests ‘should be prepared to lose all their money,’ the FCA said.
The primary concern is a lack of understanding in first-time investors who may not comprehend the complexity and volatility of the system, and who will not be able to access the Financial Ombudsman Service or compensation schemes, which protect other forms of wealth management, should their investment turn sour. This is compounded by what the FCA views as aggressive, sometimes misleading advertising that ‘may overstate the returns of products or understate the risks involved’.
The advice follows new laws which came into effect on 10 January forcing all UK cryptocurrency firms to register with the FCA, ostensibly to tackle money laundering schemes.
Five key risks
The FCA outlined five key concerns in its warning, all of which boil down to lack of regulation and the inherent risk associated with emerging forms of investment. They are:
Consumer protection: lack of regulatory oversight will not protect investors against major losses
Price volatility: rapid daily shifts and inherent difficulties valuing cryptoassets increases risk of loss
Product complexity: lack of standardised rules for buying, selling and converting back to fiat currency
Charges and fees: monetisation practices are fluid and can exceed similar fees in regulated investment channels
Marketing materials: concerns surround overstated returns and playing down risks involved
The FCA’s new guidance follows a surge in the price of Bitcoin, which more than doubled in value over the past month, alongside other major altcoins such as ETH. Bitcoin’s growth has faltered however; from a record high of $41,500 posted on Friday 8 January, the cryptocurrency plummeted by more than $10,000 over the weekend before stabilising at around $36,000 - though his is nearly double the coin’s historic high watermark of $19,783. Etherum also rebounded in the past 30 days, climbing to a high of $1333 after several years of stagnation
Five minutes with Helene Panzarino, Associate Director, LIBF
Name: Helene Panzarino
Role: Associate Director for Digital Banking and Finance
Company: The London Institute of Banking and Finance (LIBF)
We all know the companies, but what about the people behind them? Here, we find out more about Panzarino’s background, why she’s an advocate for entrepreneurs, and her take on US community bank heroism.
Who was your childhood hero, and why?
My dad. It may seem a bit of a cliche, but for someone who left school aged nine, he instilled in me the value of education and self-belief. He also had enormous pride and confidence in me and my abilities. He was my biggest supporter and a wonderfully innocent and kind person who helped shape the person I am today.
What's the best piece of advice you ever received?
‘Mentors are great, but advocates are better.’ I discovered that it's much harder for entrepreneurs to find true advocates, so this is something I try to do for other people.
Which activity are you most looking forward to doing when the pandemic is over?
I can't wait to go to Terroni Brothers in Clerkenwell, London, for some authentic Italian pastries and an espresso that I haven't had to make myself! I wrote most of my books in cafes, and I find a change of scenery also helps me think outside of the box on all my projects.
Is there a personal achievement from 2020 of which you are particularly proud?
I am most proud of having my second book, Reinventing Banking and Finance: Frameworks to Navigate Global Fintech Innovation, published by Kogan.
This book's schedule was very tight, and I was fortunate to have Alessandro Hatami, a good friend and industry peer, as co-author. We've received industry accolades, powerful endorsements, and many compliments on the clarity of thought and content, so it made it even more worthwhile.
What inspires you in fintech today?
I am hugely inspired by the way community banks in the US have become the unexpected heroes of the pandemic, getting money into accounts quickly but also being there for their customers as trusted partners.
Many community banks have been big enough to recognise that they could do more to support their customers, and it has been hugely inspiring to see them partner with the fintech community to drive operational and customer service improvement.
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